Tuesday, February 12,
2019 12:58
PM / Afrinvest Research
Following the release of our report on
Nigeria’s oil palm sector where we opined that the industry is keenly
positioned to soar further over the coming years (as investments in burgeoning
milling and refining capacity by listed sector players will crystallize in
expanded revenues and profitability), we are pleased to pitch the investment
opportunity in OKOMUOIL and PRESCO to you. In the report, we suggested that the
sector has ridden on positive government support since 2015 as oil palm import
restrictions enhanced the premium pricing opportunity for players, while the
sector also enjoys the favourable posture of federal government towards
providing low cost capital financing for the agricultural sector compared
with other sectors in Nigeria.
Okomu Oil Palm Plc… We Recommend “BUY”
For Okomu Oil Palm Plc, we expect oil palm and rubber
trees on about 8,809 hectares and 1,989 hectares to mature within our forecast
period. The company’s management revealed plans of expanding its milling
capacity to 75.0 FFB MT/hour in FY:2019 and then reach 150.0 FFB MT/hour by
FY:2022. This indicates an opportunity for growth in company revenues and
overall profitability, as we expect the company’s cost containment strategy to
continually deliver a slow pace of expansion in costs.
Specifically, we note that the business connectivity to Benin Electricity
Distribution Company (BEDC) has led to significant moderation in operating
expenses for the company although the company’s intention to power its
plantations (plants and factories) via a steam turbine fed by empty fruit brunches
(EFB) would further support cost moderation. Thus, we recommend a “BUY” rating
on OKOMUOIL with a 12-month target price (TP) of N110.34 (upside potential of
34.6%) and recommend an entry price of N82.0 based on a technical trend
analysis.
PRESCO PLC… Our Recommendation is “ACCUMULATE”
PRESCO
Plc, which has chosen to specialize in the production of
"speciality fats and oil" – RBD and PFAD – enjoys premium pricing on
its products. We opine that the company’s profitability, earlier constrained by
the weak capacity of its refinery and fractionalisation plant of 100.0 CPO
MT/day, would improve following the completion in expanded capacity to 500.0
MT/day in Q4:2019 and hence presents the possibility of an upsurge in output
and company’s profitability above sector comparable – OKOMUOIL. Also, we expect
oil palm trees on about 7,100 hectares to mature within our forecast period,
supporting the expanded refining capacity to focus more extensively on RBD and
PFAD sales. Hence, we recommend an “ACCUMULATE” rating on PRESCO with a
12-month target price (TP) of N77.29 (upside potential of 28.8%) and recommend
an entry price of N60.0 based on an analysis of its technical trend.

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The
Nigerian Oil Palm Sector Report... Full Steam Ahead
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(SP:N73.50k)